Mark J Kohler |https://markjkohler.com
America's Small Business Tax LawyerMon, 19 Nov 2018 23:36:21 +0000en-UShourly1https://wordpress.org/?v=4.9.8Year-End Health Care Strategies for Small Business Ownershttps://markjkohler.com/year-end-health-care-strategies-for-small-business-owners/
Tue, 13 Nov 2018 11:07:45 +0000https://markjkohler.com/?p=6573Here are important year-end healthcare savings and tax strategies to implement for every small business owner to consider. They could help you save thousands of dollars when you build your health-care plan of attack.]]>

Many entrepreneurs don’t realize it but as small-business owners we have more options to save on healthcare costs than any other group of Americans. The tax-planning and cost-saving strategies can be phenomenal. It simply takes a little bit of research and consulting with professionals to create the perfect plan for you.

Here are important year-end healthcare savings and tax strategies to implement for every small business owner to consider. Keep in mind some of these deadlines relate to the December 15, Insurance Enrollment deadline, and other relate to the tax strategies that need to be in place before December 31st. Review these carefully as they could help you save thousands of dollars when you build your plan of attack.

Claim the health insurance deduction properly

This is a huge benefit for small-business owners that cannot be taken advantage of by average Americans. Health insurance is 100% deductible for a small-business owner, whether you cover your other employees or not. A non-business owner would have to try and itemize this expense — and to no avail. However, if you own a small business DO NOT try and itemize. As a sole proprietor (or LLC operating as a sole proprietor), you’ll simply take this deduction on the front page of your 1040 tax return.

But if you operate your business as an S-Corp, it’s required and critical that you report the payment of your health insurance in a specific manner. Your W-2 as a shareholder/employee needs to indicate the amount of health insurance paid by the company on the shareholder’s behalf. If it doesn’t, the IRS can disallow the deduction.

YEAR END TIP: S-Corp owners issuing their final W-2 for the year need to indicate the amount of health insurance paid by the company in order to take the deduction.

Take an employees’ health insurance tax credit.

If you actually do pay for some portion of your employees’ health insurance premiums, the Small Business Healthcare Tax Credit for Small Employers is ripe for the taking. This little gem is a literal dollar-for-dollar tax credit against any taxes you owe and up to 50 percent of any healthcare premiums you pay for on behalf of your employees. There are a number of rules that really aren’t that bad, but they do require you to cover at least half of the cost of single (not family) healthcare coverage. In addition, you must have fewer than 25 full-time equivalent employees, and those employees must have average wages of less than $50,000 a year.

YEAR END TIP: Re-evaluate your healthcare plan for your employees that begins January 1, 2019, and make sure your payments on their behalf qualify for the tax credit.

Use the Health Savings Account (HSA) strategy.

This strategy is as strong as ever and a huge opportunity for the small-business owner. Although non-business owners can use a HSA, as a small-business owner you have much more control over your health insurance plan and can utilize creative strategies to acquire the right type of insurance to allow for an HSA. In order to qualify, you have to enroll in a high-deductible health plan (HDHP), and if you’re generally healthy, this is a great chance to save on premiums and avoid the doctor as much as possible.

In the meantime, your HSA are deductible from your gross pay on the front page of your tax return, potentially putting you into a lower tax bracket. In 2018, the tax deduction is up to $3,450 for singles and $6,900 for families. The funds grow tax-free and aren’t a “use it or lose it” plan. Grow and build the account for your future healthcare needs. You can also spend the money tax-free on qualified medical expenses, and you can invest the money in much the same way you invest an IRA. You can even invest HSA funds in real estate.

There is an important distinction regarding the deadlines to take advantage of an HSA in 2018 or 2019. There is the set-up deadline and the funding deadline:

Dec. 15, 2018 – Deadline to have a HDHP in order to qualify for a contribution and deduction in 2019. (Keep in mind the open enrollment began Nov. 1, 2018.)

April 15, 2019 – Deadline to contribute to your HSA for 2018 and receive the tax deduction on your 2018 tax return.

YEAR END TIP: The important tip here is that you want to choose the PROPER insurance for 2019 NOW, or you won’t get the HSA deduction in 2019. It takes planning NOW in order to get the write-off next year and your deadline is December 15, 2018. NOTE- You can still make the contribution for the 2018 HSA deduction up until April 15, 2019.

Consider the Health Reimbursement Arrangement (HRA).

This is a fantastic strategy strictly for business owners, and it really benefits those with higher-than-average medical expenses. The HRA allows you to set up your own “benefit plan” for health care and reimburse yourself for ALL of your health care expenses — thereby getting a 100 percent write-off for all of your medical expenses.

Now, this strategy must be used by a small-business owner, and again, the average American can’t even dream of implementing this strategy. The only challenge can be the structure you need to use in order to make the plan work. Sometimes it takes a little extra business planning and structuring — and certainly some attention to bookkeeping — to make it happen. But again, it can be very lucrative and worth the extra time.

YEAR END TIP: Adopt your Health Reimbursement Plan by January 1, 2019, so it is effective for the entire year of 2019.

With a little bit of tax planning with a CPA that understands the HRA, you can take massive tax deductions for your healthcare expenses over and above your health insurance.

Choose the right health insurance plan.

It’s interesting how it’s now become an important year-end issue with the advent of the “enrollment period.” We need to be thinking about the right type of insurance plan for next year — now and while we consider our tax strategies. Enrollment began November 1, 2018 and you have until December 15, 2018 to find the right type of insurance. It’s miserable I know. I’m in the same boat. It’s a lot of work and DO NOT WAIT UNTIL THE LAST MINUTE!

Make sure also to understand the types of “metal” health insurance plans and the differences between each one. Essentially, you will have to choose from platinum, gold, silver and bronze plans, with different benefits, deductibles and, of course, premiums. Generally, the platinum plans provide the greatest benefits and lowest deductibles. On the other extreme, the bronze plans have high deductibles opening the door to the HSA and are also the most affordable. Keep your anticipated health in mind as you try and choose the right type of plan for your situation.

Good News!! There is NO penalty in 2019 for not have qualifying insurance. Now with that said I’m not recommending that you don’t get insurance. Don’t throw caution to the wind and go around insured with a possible major medical accident or expense looming. However, if the only reason you were getting insurance was to avoid the penalty, you’re now in the clear!

Be aware of what enrollment options are available in your area. Are you using a state exchange or HealthCare.gov? Don’t feel you are stuck with these exchanges. They can be a great place to start, but shop around to understand your options and then seek out a provider directly or through an insurance agent. Also, don’t forget the open market. The private marketplace for insurance is still alive and well.

Finally, many shopping for insurance don’t realize that the “network” is the real issue. As you look closer, you will be surprised to see the wide range in premiums among the various types of “metal” plans. The reason isn’t just the benefits — it’s also the network of doctors that come with a particular plan. Many people don’t realize that the savings under certain policies are because the insurance company provides a smaller network of doctors under the plan, and it may be stripped of additional benefits, such as dental or vision care.

Bottom line, it’s important to have a coordinated plan for your taxes and your healthcare expenses. They are related to each other more than you may realize. Don’t leave it to chance. Plus, if you have more than $5,000 a year in out-of-pocket medical expenses, e.g. co-pays, deductibles, prescription drugs, dental, eye care, chiropractic, etc., then chances are, you could benefit from some additional planning. Just imagine if you could deduct 100 percent of these medical costs — it could be life changing.

]]>What To Do During Difficult Personal Financial Timeshttps://markjkohler.com/what-to-do-during-difficult-personal-financial-times/
Tue, 06 Nov 2018 14:39:00 +0000https://markjkohler.com/?p=5624Making these changes may be uncomfortable, but critical to survive. What do you have to lose? If your business is headed in the wrong direction, any change could make the difference!]]>

The older I get the more I realize the sun doesn’t always shine and everyone, I mean everyone, at one point is going to face difficult financial times. It’s not if they are going to come, it’s when. Now, one of the best ways we can prepare for these challenges is to expect them and have a rainy day fund, keep our debt to a minimum and be wise in our financial commitments.

However, often times these difficult times sneak up on us when we are trying to hold a business together, or blindsided by a divorce, embezzlement or a unforeseen change in our industry or market. These situations can occur quickly and before we know it we are living week to week financially trying to hold it together.

On a regular basis, I have consultations with clients focused on surviving in the economy and could care less about tax planning. Here are some thoughts I share with clients that have helped many during difficult times. I hope they may help some of you, even if things are going well.

1. Look at the big picture. Take some time to re-assess both your long- and short-term career/business goals. Determine if you like what you are currently doing and if it is helping you achieve your life goals. Decide what areas you need to change in your life and create a plan for where you want to be in the future. Don’t keep beating a dead horse if the business doesn’t have any life in it. Oftentimes we are emotionally attached to a plan of attack and we need to step back and look at the trees and being willing to make a change.

2. Crunch the numbers. Create two personal financial statements: (1) a balance sheet that lists all your assets and liabilities and (2) a cash-flow statement that shows what cash in coming in and what cash is leaving. This is not a comfortable experience and I realize many of you don’t want to look at your financial situation in black and white- It can be depressing…I know. However, it will help you know where your money is going and help you identify wasteful spending immediately. Along with your personal balance sheet and cash-flow statement, create these two financial statements for each of your businesses ventures. You’ll quickly see where the ‘leaks’ and losses are. Don’t be emotionally attached to any project, employee, business or piece of real estate. Be objective.

3. Make the tough decisions. Now that you know the businesses and assets that are a drain on your resources, you can get rid of them. Maybe it’s a rental property that is not performing or a business partnership that isn’t working out. This can be hard from an emotional standpoint, but it’s a must. Start by making a punch list of three drains on your finances and get rid of them one at a time. ALSO, be humble and realize you might have to eat ‘beans and rice’ as Dave Ramsey states. Be willing to sacrifice where needed. Cut anywhere possible. Sell any luxury items. Circle your wagons and once you get back on track you can go back to a nicer lifestyle if it’s important to you.

4. Re-evaluate your business model. As the market changes, so should your business. You need to find new ways to expand your services and get more clients in the door. Make a business plan that focuses on niche markets you want to serve and the ways you’ll add value to those customers. Don’t be married to a business model that is outdated. Making these changes may be uncomfortable, but critical to survive. What do you have to lose? If your business is headed in the wrong direction, any change could make the difference!

5. Get additional education. Buy a book or take a class. Do whatever you can to expand and your skills in your occupation or business and strengthen your marketability. Just make sure you are smart in how you spend your education dollars: Look for affordable and targeted education.

6. Eliminate debt and improve your credit. Strategically pay down your credit cards. Take the card with the highest interest rate and start paying it down first, making minimum payments on all the other cards. Then move on to the one with the next-highest interest rate. I’ve said it before in prior articles and videos, please send me an email with the subject line: ‘Debt Snowball’ and I’ll send you some files you can do your self to get started with a plan. Simple, no charge. Here’s a video on this topic:

7. Build a Team of Advisors. I realize this can be embarrassing, but you need an outside 3rd party to give you hard advice. Call me if you have too! You can’t do this on your own. Get a loved one or someone that you know won’t pull any punches and give you the hard answers you need to hear. You’ll thank them later. THIS TEAM WILL HELP YOU!!! Here is a video on ‘how’ to set-it up and make it operational:

Bottom line is don’t give up…AND for some of you that are just killing it and doing great. Remember, the pendulum swings both ways and the time will come again when you WILL have financial struggles. Prepare and remember:

“It’s not that successful people don’t have challenges, it’s that they have learned to cope with them. You can do it!”

]]>The Tax Strategy of being a Real Estate Professionalhttps://markjkohler.com/the-tax-strategy-of-being-a-real-estate-professional/
Wed, 10 Oct 2018 06:49:16 +0000https://markjkohler.com/?p=9150 I’m often surprised how many taxpayers get fixated on being a Real Estate Professional as their primary tax-planning goal, while others avoid it like the plague. Yet, there are still others that don’t even know what the fuss is all about. ]]>

Those that follow my lectures and writings know that I recommend Americans consider buying one rental property a year. It could be full or partial ownership investing with a partner. It could be a single family home, commercial property, VRBO short-term rental or even a group of mobile homes.

Why do I say this? Five primary reasons.

Steady appreciation over the long-term

Tax Deferred growth and capital gain treatment

Tax free cash flow

Mortgage reduction through renter’s payments

Tax write-offs through business expenses and depreciation

Now I realize rental property is not a perfect fit for everyone. There are a lot of variables…your financial strength, credit worthiness, your temperament and time you have to manage property, and of course, it also depends on the season of your life.

I encourage all of you to ‘at least’ consider buying one rental this year (in or outside of your retirement account) and determine if it is a good fit for you.

Once an investor starts buying rental real estate, one of the top strategies we recommend to our clients is to consider the benefits of qualifying as a Real Estate Professional. As many real estate investors quickly discover, rental real estate has the amazing power to potentially provide tax losses/deductions with tax free cash flow, on top of building

However, although buying real estate is something every investor should consider, being a “real estate professional” ISN’T for everyone. Don’t feel like this should be the first priority in tax planning when it comes to real estate. This classification only helps WHEN you have multiple rental properties and you make more than $150,000 a year in Adjusted Gross Income.

There are three categories the IRS uses to classify real estate investors, each having different pros and cons.

The first classification is that of a “Passive Investor”. This is the least beneficial category and only allows a taxpayer the ability to deduct passive losses against passive gains.

The second classification is that of an “Active Investor”. This designation allows a taxpayer to deduct an additional $25,000 of losses against ordinary income, however, this deduction phases out completely at the Adjusted Gross Income (AGI) level of $150,000 for a married couple filing jointly and $100,000 for a single individual. Anyone can qualify and to do so must simply be involved in the decision making for the real estate investment, and doesn’t even require the taxpayer to make a special election on their tax return.

Third, the “Real Estate Professional” classification allows taxpayers to deduct 100% of all real estate losses against ordinary income…IF they qualify and WANT to qualify.

How to qualify as a Real Estate Professional. To meet this threshold, a taxpayer, or their spouse, must meet a three-part test. First, the taxpayer must spend the majority of his or her time in real property businesses.

Second, the taxpayer must spend 750 hours or more in the industry of real estate or in the ‘real property business’. The biggest question we are often asked is what occupations qualify as real property businesses. The IRS does not statutorily list which jobs qualify, but if you are working as an entrepreneur in the real estate industry, licensed or not, we want to talk about it.

Finally, the third test is that the taxpayer must ‘materially participate’ in the management of the properties. However, the beauty is that you can actually qualify for material participation under another 7 different tests, which in practice are actually quite easy to qualify for.

Again, as a cautionary note, it is important to realize that qualifying as a Real Estate Professional is not a ‘fit’ for every taxpayer. I’m often surprised how many taxpayers get fixated on being a Real Estate Professional as their primary tax-planning goal, while others avoid it like the plague. Yet, there are still others that don’t even know what the fuss is all about.

Let’s break it down and see where the truth may lead you in your personal planning. First, let’s talk about the ‘bad news’ if you will, and why some folks feel that being a “Dealer” or “Real Estate Professional”(essentially the same thing) is the death nail on a tax return.

The problem with being a Real Estate Professional. There are 2 major issues with being a “Dealer” and can provide legitimate concern for the taxpayer.

A 1031 exchange is a powerful strategy and only getting more popular again as real estate values rebound. A 1031 exchange allows you to sell a property or properties and exchange them for equal or greater value with another property or properties (the topic for another article). However, if you are a Dealer the IRS will most certainly hold you to higher standards in order to qualify for a 1031 exchange.

Next, if you are a Professional than the IRS considers your short-term gains and income in all of your real estate activities as ‘ordinary income’. As such, this income will be subject to self-employment tax. While easily mitigated with an S-Corporation, it’s something a Dealer needs to reckon with and the new real estate investor isn’t blindsided by its wrath.

The benefits of being classified as a Real Estate Professional. There is essentially one major benefit to being a Dealer, a tax benefit, and that’s probably the reason for all of the hype.

As a real estate professional, a taxpayer is allowed to deduct one hundred percent (100%) of their rental real estate losses against any other type of income. As many of my clients have learned through my book, articles, and presentations, rental real estate can cash flow wonderfully, but still have the ability to create passive loss write-offs due to depreciation and mortgage interest expenses.

Right now in my life, I’m not a real estate professional, and that’s ok. I am limited on my tax return to a maximum of $25,000 in rental real estate losses until my adjusted gross income reaches $150k. At that point, the losses aren’t “lost” they are just captured and carried forward until I sell any one of my properties.

Bottom line, I encourage all taxpayers to consider and be aware of the strategy. If you don’t have rental property, don’t stress. If you do have rentals, then the strategy can become even more important and you want to make sure you are classifying yourself properly. Make sure you consult with your personal tax consultant to determine if this should be part of your tax plan this year or in years to come.

]]>Putting Your Children on Payrollhttps://markjkohler.com/putting-your-children-on-payroll/
Tue, 02 Oct 2018 04:06:11 +0000https://markjkohler.com/?p=9094This has to be one of the most under utilized tax strategies by small business owners with families today. Many don’t realize that paying their children under age 18 is an excellent strategy to minimize their tax liability, not to mention it creates a host of other ancillary benefits.]]>

This has to be one of the most under utilized tax strategies by small business owners with families today. Many don’t realize that paying their children under age 18 is an excellent strategy to minimize their tax liability, not to mention it creates a host of other ancillary benefits.

The days of the farm are continuing to disappear all across America and more and more children are leaving the home without work ethic, money management skills and a concept of entrepreneurship. Moreover, many small business owners forget that some of their most affordable labor is right there in the house with them eating at the dinner table. Get them involved in the business!!

The beauty of the tax benefit is two fold, and something that can’t be over emphasized. Run the numbers and you’ll be amazed.

First, when you pay your children under 18, you don’t have to withhold any income taxes or payroll taxes. (IRC Code Sec. 3121(b)(3)(A), IRC Reg Section 31.3401(a)(4)-1(b), and IRS Pub No. 15, (2011), p.10) This also applies to Workers Compensation (unless you are in the State of Washington- make sure you look up the rules for even your own kids at the WA Dept of Labor here).

Yes, that’s right no federal payroll tax withholding on your own kids and the general rule and reasoning regarding Workers Comp in almost all the states is that the government and insurance carriers don’t assume your children will sue you if they are hurt on the job- at least we hope not. They are also probably on your health insurance plan and you’ll pay the bill one way or another.

Second, all of us in the U.S. and including our children, don’t pay taxes on the first $12,000 of income this year in 2018! (See TCJA and increase in the Standard Deduction. Rev Proc 2011-52, Sec. 3.11(1), 2011-45 IRB). Also, the “Kiddie Tax” (if you have ever heard of that) doesn’t apply to ‘earned income’.

You can still claim your children on your tax return as a dependent and even tax the child tax credit, however, they don’t pay taxes on their earned income on the first $12,000!

Now the strategy. Where do the kids get earned income? You take a tax deduction in your business for paying your kids a legitimate wage or legitimate work and services. Thus, you generate an excellent tax deductible expense for your income taxes (inside your business) by pushing income to your children.

Now of course, I’m not advocating you pay your children as a ‘sham’ operation. That have to be legitimately involved in the business and you want to keep records of their time worked, as well as pay them a reasonable wage. Hiring your children to simply to ‘family chores’ is not going to qualify as a valid deduction and will certainly set you up for an audit. (See U.S. v. Renfrow, 104 AFTR 2d 2009-5497, 1/26/2009).

Here is the procedure, and it’s important you follow the write procedure or it could backfire on you!

The IRS allows any sole proprietorship or partnership (LLC) that is wholly owned by a child’s parents to pay wages to children under age 18 without having to withhold the payroll taxes.

However, if you have an S or a C-Corporation you do not receive this benefit of avoiding FICA when paying your children. Don’t pay your children out of a corporation, or you have to withhold payroll taxes. (IRS Pub No. 15, (2011), p.10).

Thus, we recommend you pay children out of a family management company (sole prop) paid a management fee from the Corporation, or simply pay them out of a Sole-Proprietorship or LLC with independent income and operations.

If you are paying children over age 18 or grandchildren, you have the option of treating them as a sub-contractor or employee, but you will have to withhold FICA and other typical payroll fees if they are an employee.

I have seen this strategy not only save clients thousands of dollars in taxes, but literally change the lives of their families. Children begin to learn work ethic and it can draw a family together in ways never fathomed by small business owners. Talk to your CPA and get a plan for this year before it’s to late.

* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.

]]>Designing a Powerful Executive Summary for Your Business Planhttps://markjkohler.com/designing-a-powerful-executive-summary-for-your-business-plan/
Tue, 04 Sep 2018 23:58:52 +0000https://markjkohler.com/?p=8918The Executive Summary is the most important section of your Business Plan. It provides a concise overview of the entire plan along with a history of your company. This section tells the reader where your company is and where you want to take it.]]>

The Executive Summary is the most important section of your Business Plan. It provides a concise overview of the entire plan along with a history of your company. This section tells the reader where your company is and where you want to take it.

It’s also the first thing your readers see, therefore it will either grab their interest and make them want to read more or make them want to put it down and forget about it. More than anything else, this section is important because it tells the reader why you think your business idea will be successful!

Some suggest the Executive Summary should be the last section you write after you’ve worked out all the details of your plan. The reason is that you will be in a better position to summarize your business concept after researching and writing all of the other sections. It’s interesting that it’s the last thing you write, but the first thing others see.

Some of the important points you should cover in the Executive Summary are:

The Mission Statement briefly explains the thrust of your business. It could be two words, two sentences, a paragraph, or even a single image. It should be as direct and focused as possible, and it should leave the reader with a clear picture of what your business is all about. In fact, some experts suggest that the Mission Statement is just too much information for the Executive Summary and should be left inside the Business Plan.

Names of founders and the functions they perform.

If the business is already underway, a brief summary of the condition of the business, number of employees, sales, etc.

Location of business and any assets, equipment, or facilities under use or needed to get started.

Products and/or services to be rendered.

Summary of the Marketing Plan.

Summary of management’s future plans and timeline for the business.

Don’t lose sight of the fact that the Executive Summary should be a “summary” and not more than one (1) page. Most experts say never more than one page. With the exception of the mission statement, all of the information should be highlighted in a brief, even bulleted, fashion. Remember, these facts are laid out in-depth later in the plan.

If you can fit it in, try to give a little space to your experience and background, as well as the decisions that led you to start this particular enterprise. Include information about the problems your target market has and what solutions you provide. Show how the expertise you have will allow you to make significant inroads into the market. Tell your reader what you’re going to do differently or better.

Finally, please remember, you have to convince the reader that there is a need for your service or product, then go ahead and address your future plans. The Executive Summary is your ‘elevator pitch’. Nail it and your vendors, partners, lenders and strategic partners will want to jump on board and help you succeed.

* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.

]]>LLCs Must do Annual Maintenance Just Like Corporationshttps://markjkohler.com/llcs-must-do-annual-maintenance-just-like-corporations/
Tue, 28 Aug 2018 20:05:19 +0000https://markjkohler.com/?p=8720There are more and more cases of where the Limited Liability Company (LLC) is “pierced” in a lawsuit and the owner’s personal assets are grabbed by a plaintiff. The reason why…owners are not doing their annual maintenance.]]>

Please forgive me for being so bold, but I am getting tired of people telling me “I don’t have to do annual maintenance for my LLC because it’s not required” and “My one page Articles of Organization from the State is all I need” – Wrong!

There are more and more cases of where the Limited Liability Company (LLC) is “pierced” in a lawsuit and the owner’s personal assets are grabbed by a plaintiff. The reason why…owners are not doing their annual maintenance.

Now it doesn’t have to be expensive, it can actually be easy. It can also:

Increase your audit protection with the IRS

Get you more tax write-offs

Help you create a Board of Advisors for support

Better build your business and increase sales

And of course, give you the asset protection you THINK you have!

I have been shouting from the rooftops for years, but it doesn’t seem to be getting through. Small business owners, if you have an LLC or S-Corp you MUST do the following every year or face having no asset protection or even having your entity TERMINATED by the State:

Have a complete formation of the company with all the supporting documents

Please complete ALL the documentation. Now if you haven’t…all is not lost. You can ‘tidy up your records’ for lack of a better word or phrase. We call it a ‘Company Clean up’ at our law firm. For a few hundred dollars your LLC can be completed, up to speed and as good as new. You can do it yourself or any law firm can assist. Just don’t listen to anyone that wants to charge you north of $600 or throw away your LLC and start over. Check out our CMP program at KKOS Lawyers and let our Paralegals take care of the clean-up and get your Minutes up to date and ALL the company formation documents you need.

Here are the pieces you should have with your LLC

Articles of Organization (filed with the State)

Operating Agreement between the Members and Manager

Organizational Resolution of the Members

Corporate Book

Membership Certificates and Seal or Seals

EIN IRS Application

What do Annual meetings and Records look like for my LLC?

The general purpose of meetings, minutes and resolutions is to document and authorize acts taken by an entity, company meetings can accomplish several other important goals that we feel are critical to a business’s long term success.

They can be typed up by the business owner themselves, even handwritten, HOWEVER, the important thing is to do them, create the documentation and put them in your corporate book. It’s easy and affordable to simply make sure you hold your annual Member and Manager Meetings. Write down things like what the sales were for the prior year, what you purchased, what you sold, who you hired, who you fired…and then most importantly the plans for the future. What you want to accomplish.

Involve the family members and teach them about the operations of the business

We have a 25 point questionnaire you can even fill out online and then our Paralegals prep your “Minutes” so they are done and look pretty. We ALSO pay the fee to the State and make sure you are in good standing every year (see below). Amazingly, this whole service is completed for $150 per year, plus any filing fees! Check out our CMP program at KKOS Lawyers and let our Paralegals take care of the details.

What does it mean to have your entity cancelled or terminated by the State?

Every state is different, but the far majority of States require an annual report and/or fee to stay in ‘good standing’. If you don’t do it, then the state automatically terminates your entity- oftentimes without even giving you notice they did so.

The result- you no longer have the protection of the corporate veil, and owners and managers are open to lawsuits personally. When you have just been served with a lawsuit, is a bad time to realize your entity has been cancelled as you are far too late to reestablish a cancelled entity.

Also, the entity may no longer bring an action against another party in court. There is a growing body of case law where LLCs and other entities lack standing to bring any action against a party because they have been systematically dissolved.

Some other possible results of cancellation include entity contracts being deemed invalid and partners using dissolution as an excuse to bail on the partnership- Not good.

This is why making sure you understand the rules at YOUR Secretary of State of annual reporting and fees. Sometimes the states sends out notices, and others do not. Put it on your calendar or have a service to help you never forget to stay on top of this.

What are the Tax Filings I need to worry about with my LLC?

I’m so sorry. For those that are new to business ownership, I know this whole area of taxes and reporting can be confusing and overwhelming. This is why we/me are here!! I’ll help you understand this whole crazy area of taxes and explain it in plain English. PLEASE continue to read the weekly E-Newsletter (sign up here), listen to the podcast, and check out my training videos. It will take a little time, but it will come to you.

Here are some of the tax filings you should CONFIRM if you need to file in your situation:

Federal Taxes. If it’s a Single Member LLC (owned 100% by you and/or your spouse), then you will have to file any operations on your 1040 (probably a Schedule C-if a operational business, or Schedule E- if a rental property).

Federal Taxes. If it’s owned by multiple people (say 50/50% with you and a partner), then you have to complete a Federal Partnership Tax Return (Form 1065). It is VERY important you understand the reporting process and deadlines for this 1065 tax return. The penalties for not filing on time can really add up.

State Income Tax Return. This again is different if you are a 100% owner or 50/50 with someone. Make sure you file this State form (if required) at the same time you you’re your Federal return. You typically don’t have to file, unless you are a partnership, if you are in a non-state-tax state such as Alaska, Florida, Nevada, South Dakota, Texas, Washington state, Wyoming, New Hampshire, or Tennessee.

Having an LLC is an incredible opportunity to build wealth with a small business or investment. We love it!! But just make sure you are familiar with your responsibilities as an owner of this incredible small business tool and take your business operations to the next level. Know your State’s rules and get set up on a system with your accounting professional. We produce a ton of free content that will help you along the way and even attending one of our annual events or investing in our education material will better help you succeed in your business!!

* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.

First, you need to know I don’t sell insurance. This is important, because 99% of the articles on the web regarding umbrella insurance have some interest in selling it or at least making insurance companies look good.

Seriously, I search for almost an hour and couldn’t find ONE article that talked about ANY problems or drawbacks of umbrella insurance (just to see what was already out there). Seriously!? Of course, what should I expect it’s not surprising that EVERY Wall Street owned media machine isn’t going to say anything bad about Umbrella insurance and they’ll do everything they can to dominate Google search. We’ll see if this article makes a dent.

Where am I coming from? As an attorney, CPA, and small business advisor I have nothing to financially gain by selling you insurance and telling you what I really think. I’m an advocate for my clients to save money, taxes and protect their assets, and furthermore I have a fiduciary duty to give them unbiased, honest and actually helpful advice.

So is umbrella insurance inherently bad, a scam or worthless. No. But, is it for everyone? Another absolutely not! But heaven forbid insurance companies let anyone else say otherwise. Apparently, according to Wall Street, everybody needs an umbrella policy.

But, here’s the truth in my opinion about umbrella insurance and you may not like to hear what I have to say.

Umbrella insurance is for gaps and excess claims only. Do not think of umbrella insurance as your primary insurance policy. It’s not meant to be. It’s there if your ‘primary’ insurance doesn’t cover all of your claims. That’s it. You don’t buy an umbrella policy to save money and think you have coverage to run wild OR have ‘extra’ insurance. It’s there, you hope, when your primary policy lets you down.

Texting and driving example. You’re cruising down the road texting and driving, which you know you shouldn’t be doing, and you get into a horrific accident causing someone’s death. It’s your fault and there are claims of close to 1M against you. Your normal auto insurance has a policy limit of 500k. You have umbrella insurance with a 500k limit. Your primary insurance settles with the plaintiff(s) for policy limits (500k) and the umbrella insurance picks up the difference for up to the 1M claim. Assuming there aren’t any exclusions on either policy because it’s a felony for vehicular manslaughter or homicide, which is more and more common in many states, your insurance policy should come to your rescue- you hope!

2. A ‘Personal Umbrella’ is different than a “Business Umbrella’. This is a common mistake in the flurry of advertising and advice to get an umbrella policy. Take careful note that if you have rental property or a business, a personal umbrella policy isn’t going to do you any good when there’s a claim from that disgruntled tenant or employee. Make sure to shop for the right ‘type’ of umbrella and quiz your agent specifically and diligently about every possible claim you can think of AND WHAT your policy your buying will cover.

Landlord / Tenant example. You have a rental property at local college hoping for higher rents stuffing multiple kids into the house. But of course, they decide to throw a party the first weekend of the semester and not only end up trashing your place, but regrettably there is a defect with the deck around your pool and a drunk patron falls into your pool and drowns. To your shock (if hearing of the accident wasn’t bad enough), you are slapped with a 1M wrongful death claim from an aggressive personally injury lawyer. But wait, your ok…you have insurance. Not so fast, you quickly discover that your homeowner’s policy that you got such a good deal on was literally just that: a ‘homeowner’s policy’ for YOUR home, not a landlord policy under your LLC. Result- no coverage! But it’s ok…you have umbrella insurance to come to your rescue…or do you? Umbrella policies (as I tried to explain above ONLY pay out for excess claims or gaps, NOT if your initial coverage doesn’t pay at all. Well, thank heavens you had an LLC with that one sheet of paper from that famous online website. Oh, but you cut corners on your company maintenance for the LLC (because you were told by some nut you didn’t have to treat an LLC like a corporation) AND you also never deeded the property into your LLC. Do you think you have a problem? It doesn’t look good. You could be on the hook for 1M!! Recommendation: Get the right type of landlord insurance, get a ‘commercial umbrella’ IF you’re going to get one, set-up the LLC with a law firm that can guide you through all the steps (check us out for less than $800) and do you all of your annual company maintenance (we’re only $150 a year)- NOW you have real protection!

Umbrella Insurance is cheap because it rarely pays. I know you want to use it as your primary insurance because it’s cheap, but the reason it’s so affordable is because it rarely pays out. It’s built for unlikely and catastrophic claims (as if normal insurance wasn’t enough). I’m skeptical, because in 2014 the average combined payout under auto insurance coverage, for property damage and bodily injury, was under $19,930- combined!! Hence, if you carry a decent policy limit on your auto insurance policy (at least 250k or maybe 500k), the chance of having an excess claim is less than .001% of all those that carry auto insurance.

Vegas & Insurance?? Now I would LOVE to give you the exact citation for such a statistic, but I was only able to extrapolate a very, very conservative estimate because it’s absolutely impossible to get any real statistics from insurance company payouts. Does Vegas publish their odds on winners at the tables and slots? Absolutely not. Do you think insurance companies are any different?! Go watch Mat Damon in Rainmaker. I just couldn’t find a Danny DeVito to go through an insurance company’s dumpster to grab me the stats in time for this article.

Now don’t get me wrong, would you want to have umbrella insurance if you had a claim for seriously harming someone – yes. But again, you carry it on TOP of your standard policy.

Don’t buy Umbrella Insurance from the same company as your primary insurance. One simple reason why…Lawyers. You want a different, AND additional team of lawyers help fight for you in your lawsuit and with a different insurance company for your umbrella insurance, that’s exactly what you’ll get. However, your primary insurance company will most certainly try and sell you ‘umbrella’ on top of your standard. If they are doing you a favor, they’ll recommend you get your umbrella policy from someone else.

So you may ask…in the end Mark, what do you do? Well, I have a freaking personal umbrella policy AND a commercial umbrella for my rentals!!

I know, I’m a sucker. Maybe it’s because I have teenage drivers (probably my main reason for my personal umbrella), or a tenant who is probably selling meth out of my section 8 low income housing rental (probably my main reason for the commercial umbrella)…or maybe it’s because I’m just paranoid and a borderline ‘prepper’. It’s probably because I’m under the delusion that it’s the only rational thing to do in today’s modern society.

]]>The Auto Deduction in 2018 – Mileage or Actual?https://markjkohler.com/maximizing-your-car-or-truck-deduction/
Tue, 14 Aug 2018 09:47:20 +0000https://markjkohler.com/?p=6148The law has changed in 2018 - Big time!! Things got a lot better for business owners with cars/autos...if not AT THE LEAST you have a lot more options. You can actually write-off a vehicle at lot faster and with bigger deductions!]]>

First and foremost, remember the auto deduction isn’t travel, but expenses for your car, truck or SUV. Also, remember this includes ALL your vehicles as long as they have some sort of business use, i.e. an RV, van, delivery truck or motorcycle used in your business (more articles to come)!

Next, the law has changed in 2018 – Big time!! Things got a lot better for business owners with cars/autos…if not AT LEAST you have a lot more options. You can actually write-off a vehicle at lot faster and with bigger deductions!

There are TWO MAIN OPTIONS to write off auto expenses and it all starts here!!

Mileage. On ANY of your vehicles you can use mileage as an EXCELLENT method to expense the business use of your vehicle. In 2018 your mileage deductions are as follows:

Business – 54.5 cents a mile

Charity – 14 cents a mile

Medical and Moving – 18 cents a mile

Personal or Commuting – NO DEDUCTION

In the past, 90% of our clients used the mileage method because it’s SIMPLE, EASY and a LARGE deduction, but now its a whole new ball game!! Keep in mind almost every situation with business owning taxpayers will vary and several MAJOR factors will impact the analysis.

Actual Expenses. The second method in deducting automobile expenses is by using the actual expenses for the vehicle. When you use this method you CANNOT use mileage. Essentially, you track your fuel, repairs, maintenance, insurance, tires and then also “depreciate” the vehicle or a portion of the lease payment if leasing.

The PROBLEM IN THE PAST is that because of limits imposed back in the 1980s your depreciation deduction was ridiculously low. For example, if you bought a $40,000 car and drove it 100% for business, your maximum deductions for the first five years would only be $15,060. To fully depreciate the car would take 19 years!! Are you kidding me?!!

HIGHER Deprecation – Under the new law, the limits are dramatically increased, whether it’s new or used. In fact, you can convert a personal car to business and take the same depreciation amounts (you don’t have to buy a new or used car to start depreciation and actual expenses. This is also assuming you don’t use the mileage method…something I analyze more fully below. The new annual limits are:

Year 1 – $10,000

Year 2 – $16,000

Year 3 – $9,600

Year 4, and each subsequent year – $5,760

So when you buy that $40,000 car in 2018 (compare the example above), you can actually write-off 89% of the car in the first 3 years, PLUS fuel, repairs, maintenance, etc… That’s well over 80,000 in miles if you were to use the mileage method!!

BONUS Depreciation – Also, under the new law, we get a perk if we go out and buy a new OR USED car. That’s right. It doesn’t have to be ‘brand’ new, just new to you. This ‘Bonus’ is to stimulate the economy. The bonus depreciation is $8,000 and comes off the top! Here’s the math:

$40,000 vehicle

-$8,000 bonus depreciation

$32,000 basis for standard deprecation, which will not fully be depreciated in the first 3 years!

So what method is best for You – Actual or Mileage?

This is where it gets tricky. There are lots of issues to consider:

The miles per gallon (MPG) on the vehicle

Bonus depreciation if a new purchase

Total repairs or expected repairs and maintenance

How many miles you expect to put on the vehicle

and of course, HOW MUCH will this car cost

Nonetheless, we’ve discovered some ‘general rules/guidelines’ that can at least be a starting point for a discussion and possibly point a client of ours in the right direction while they are shopping for a car (and don’t even get me started on leasing :))

General rule #1 – If you are going to put on A LOT of business miles, AND the car is generally a lower purchase cost (maybe 25-35k), then theMileage Method is going to win.

General rule #2 – If your NOT going to have a bunch of business miles, but use the car exclusively or primarily for business, then you will lean towards the Actual Method.

General rule #3 – If you are going to buy a 6,000+ or greater SUV or Truck, you will generally lean towards the Actual Method (because you are going to have a lower MPG pushing up your actual costs and bonus depreciation is 100%- you can write off the vehicle entirely in the first year. Again see:

General rule #4 – If you have a high MPG (think hybrid or electric), but still have average use and miles, you will lean towards the Mileage Method (because your operating costs are going to be much lower generally).

** Again, keep in mind these are just general observations and considerations and you need to consider all the facts of your situation with your tax advisor before choosing a method.

No matter what method you choose, keep in mind a SPECIAL NOTE—Tracking Mileage. It’s important you ALWAYS track your mileage (or estimate it as best as you honestly and ethically can) because it will determine your ‘business use percentage’ for the actual method AND of course you mileage deduction if you are using the mileage method. It can be a written record, but I also have partnered with Deductr to create my own Tax Planning and Tracking Smart Phone Application (this link gives you a 50 percent discount from the App Store)!!

Leased Vehicles. Leasing is a phenomenal deduction, but not without its drawbacks. The tax benefits are phenomenal. You can again take all the actual expenses, including the lease payment (based on your business use percentage) and also save on the cost of a luxury car when monthly payments may be cheaper when leasing.

The drawback isn’t a surprise for those that have leased a vehicle before—the mileage limitations by the manufacturer/dealer can really bite you in the end. For example, if you are only allowed 15,000 miles annually under the lease, when you turn in the vehicle at the end of the leasing period, you have to pay for every mile you went over—buckle up!!

The Benefit of Leasing is for those that want a second car, and maybe something a little nicer, to take clients and customers out to lunch in and make sales calls. When a client has another vehicle for personal or business use where they can be indiscriminate with miles and rack them up when needed, and NOT on the leased vehicle, then leasing may be a perfect fit for that second vehicle.

Bottom line, I suggest you create a spreadsheet to analyze the situation. It doesn’t have to be complex either. Just think through your options AND realize that if you are going to spend THOUSANDS OF DOLLARS on this vehicle, it’s valuable to take a few minutes to analyze the various tax deduction options. Establish columns to compare mileage, to purchase, to lease, and then your rows can be different types of vehicles and different scenarios. You can do some initial research and calculations by simply pulling information off the web and then have your accountant/tax preparer fine tune your analysis!! It could save you A LOT of money to go through this analysis and process.

* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.

]]>Maximizing the Home Office Deductionhttps://markjkohler.com/maximizing-the-home-office-deduction/
Mon, 06 Aug 2018 13:36:52 +0000https://markjkohler.com/?p=3854The Home Office Deduction is still alive and well...don't let any accountant tell you otherwise. There are several strategies on how to maximize the Home Office Deduction. It is NOT high risk and every good business owners should take advantage of a home office write-off. ]]>

The Home Office Deduction is still alive and well…don’t let any accountant tell you otherwise. There are several strategies on how to maximize the Home Office Deduction. It is NOT high risk and every good business owners should take advantage of a home office write-off.

The Myth

Before I get into the requirements and your options for deducting the home office, keep in mind that I’m sick and tired of hearing new clients and students of mine explain that their personal accountant is ‘afraid’ to take this deduction and explain it’s ‘high risk’. That simply isn’t true. As long as you are entitled to take it, aren’t too aggressive, and take use the proper method/strategy there is nothing to worry about. Even if you are audited, you shouldn’t shy away from taking a deduction when you are legally able to do so.

FIRST: The Requirements to Claim the Deduction

Before you can talk about ‘how’ you take the deduction, you want to make sure you ‘can’. There are two basic requirements for your home to qualify as a deduction:

1. Regular and Exclusive Use. You must regularly use part of your home exclusively for conducting business. Now I know the word ‘exclusively’ may concern you. However, as long as it isn’t your bedroom or the kitchen, even a portion of a studio apartment will qualify. Just make sure you have a desk and a computer reflecting the business use.

2. Principal Place of Your Business. I feel this is the more serious qualification, in that you must show that you use your home as your principal place of business. Thus, if you have ‘another office’ in town for your business, your home office may be off limits. However, if you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business.

NEW RULE!!! – The ‘Administrative office’ has evolved in various tax court cases over the past 2 years. This gives an option to the business owner that meets client/customers at a ‘main office’, but then comes home to return email, billing, do the books and various other administrative tasks.

TIP– If you have multiple businesses, i.e. a rental property business, use the home office deduction for this business and leave it alone for your primary or operational business.

SECOND: Two (2) Options to Calculate the Deduction

Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities. However, the IRS has now come up with another option for completing the actual ‘calculation’.

1. Simplified Option. Since 2014 you now have a simpler option for computing the business use of your home. This new simplified option can significantly reduce record keeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses. (The standard method has some calculation, allocation, and substantiation requirements that are complex and burdensome for small business owners.) There are several principal benefits of this new option:

Standard deduction of $5 per square foot of home used for business (maximum 300 square feet- so essentially $1,500 per year).

No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.

2. Regular Method. Now you can probably get a higher deduction with the Regular Method in many instances, however, you will have to worry about a more technical calculation AND have the issue of depreciation recapture in the future. Moreover, you will be stealing deductions from your Schedule A in order to maximize the deduction. However, in some instances, this could be a better route to take. Essentially, taxpayers using the regular method (required for tax years 2012 and prior), must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use.

A Word about S-Corporations

For those of you operating as S-Corporations, a standard industry practice is to calculate a fair home office ‘reimbursement’ amount and take a deduction for rent in the S-Corp (and receive it as a tax-free reimbursement for the use of your home). As long as the amount would be similar to that taken with the home office worksheet for a sole-proprietorship, this is a great way to take the deduction in a much less visible manner and further reduce your chances of an IRS audit or interest in you taking the deduction.

Bottom line, talk with your CPA and demand an aggressive position on this deduction. Don’t be talked out of taking it simply out of fear, but only if you clearly don’t qualify.

* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.

]]>Plan Your Travel for a Tax Write-Offhttps://markjkohler.com/plan-your-travel-write-offs-for-the-holidays-now/
Mon, 30 Jul 2018 13:17:26 +0000https://markjkohler.com/?p=3959Making sure our travel has a 'business purpose' is critical and a perfect opportunity for business owners for a great tax write-off.]]>

In my opinion, travel is one of the most underutilized tax deductions by small business owners today!!

Making sure our travel has a ‘business purpose’ is critical and a perfect opportunity for business owners for a great tax write-off. In fact, even properly planned holiday travel can potentially generate significant tax deductions while we are visiting family or going to our special/romantic locations around the U.S. and the world. Even if we gain a few pounds, we might shed a few tax dollars.

Unlike meals and entertainment, which are limited by 50%, travel expenses are 100%deductible. These include airfare, hotel, rental cars, valet, taxi, trains, tolls, etc. You would be shocked to know how many new clients’ tax returns come across my desk every year with literally zero travel deductions. Consider the 5 following ideas that you might be able to coordinate with or plan ‘in and around’ your personal travel.

Company Annual Meeting. If you have a corporation, this would be considered your Board of Directors Meeting and Shareholders Meeting. If you have an LLC, elect a Board of Advisors to assist the Manager or Managers of the Company. This is an excellent opportunity to discuss the operations of the company over the past year. Profits, losses, acquisitions, new ventures, goal setting…utilize the advice of your board members and make plans for the next year.

Visit a client. Wherever you are traveling to, is there a customer or client in the area? Could you cultivate a new relationship or strengthen a current one. Schedule meetings each day you are traveling, at least for a few hours, and keep notes of what you accomplish and why the meeting was important.

Visit a vendor. Is there a vendor or supplier, sub-contractor or affiliate you could meet with where grandma or grandpa lives? Could you negotiate new pricing, tour a facility, talk about networking and how you could work more closely together. The tax write-off may even be simply a bonus when you consider the business you could generate with a strategic meeting that produces more revenue for the business.

Attend a conference or workshop. Look at possible workshops in the local area where you are visiting. Consider classes tax, legal, business, marketing, website, SEO, customer relationship, or technical training based on your type of business. At the very least, visit a local real estate or investment club meeting if possible. The training could be fantastic and justify a great write-off to boot.

Check on your rental property. I’ve said it time and time again. At least consider and/or attempt to purchase rentals where you travel. More specifically, could you buy rentals where the extended family live. Have them help manage your properties or simply work on them while you are visiting. Sometimes, it’s a great excuse to get out of family functions to have to leave and work on the ‘rental’- just saying.

The list goes on and on; it just doesn’t make sense for any business owner to not have at least some travel expenses.

Keep in mind that travel days include the ‘day’ you get there, the ‘day’ you do business, and the ‘day’ you travelback home! Thus, a properly planned 3 day trip, with a legitimate business purpose, could be coordinated with some personal relaxation or fun and still be a 100% tax write-off.

With all of these strategies, moderation is key. Make sure that you are doing business each day ‘you aren’t traveling’ and keep records of what you are doing, who you are meeting with, and how it relates to your business. As usual, the more money you make in your business, the more opportunity we have to be aggressive and take a larger deduction. Don’t get greedy. Keep your receipts, records and discuss the expenses with your CPA at the end of the year in order to report a well-balanced tax return. As I have said many times before…Pigs get Fat and Hogs get Slaughtered.

* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visitwww.markjkohler.com.